1 A Beginner's Guide to the Forex: The 10 Keys to Successful Trading By Jared F. Martinez Visit Market Traders Institutes - Forex Home Study Courses Website: MARKETTRADERS.COM Market Traders Institute, Inc. 400 Colonial Center Parkway, Suite 350 Lake Mary, Florida, 32746 (407) 740 0900 US - Toll Free - (800) 866 7431 Legal Notices: The 10 Keys to Successful Trading 1998 - 2012. ALL RIGHTS RESERVED: No part of this book may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval systems, without the express written permission from the author and publisher. All materials contained herein have been copyrighted. Reproduction will be in violation of all Copyright Laws. Violators will be prosecuted. While attempts have been made to verify the accuracy of information provided in this manual, neither the author nor the publisher assumes responsibility for errors, inaccuracies or omissions. There are no claims by the Author, Jared F. Martinez, or Market Traders Institute, Inc., ForexTips.com or any of its directors, employees, and affiliated instructors that the trading strategies or methodologies in this manual will result in profits and will not result in losses. This manual is not a guarantee to produce profits. Currency trading on the FOREX and trading results in general vary from individual to individual and may not be suitable for everyone. All strategies, techniques, methodologies and trades contained in this manual should not be construed as an invitation to enter and trade in the market. Each trader is responsible for his or her own actions. Your downloading of this manual confirms your agreement with the Statement of Risk, constitutes your agreement to this disclaimer, confirms and exempts the author, publisher and Instructors from any liabilities or litigation. 2012 Market Traders Institute, Inc.
2 Your Constant Companion I am your constant companion. I am your greatest helper or heaviest burden. I will push you onward or drag you down to failure. I am completely at your command. I am managed with careyou must be firm with me. Show me exactly how you want something done, and after enough lessons, I will do it automatically. I am the servant of all great people and, alas, of all failures. Those who are great, I have made great. Those who are failures, I have made failures. I am not a machine, though I work with the precision of a machine and the intelligence of a person. You may run me for profit or run me for ruinit makes no difference to me. Take me, train me, and be firm with me, and I will place the world at your feet. Be easy with me and I will destroy you. Who am I? I am habit! ~ Author Unknown
3 Table of Contents Introduction A Trader's Mission and Goal 04 Level of Traders 04 Chapter One: What is the Forex? Foreign Exchange Market 05 Roles of Commercial Banks 05 Advantages of Forex Trading 06 Chapter Two: Reading Candlestick Charts Bullish Candlestick Formations 10 Bearish Candlestick Formations 12 Neutral Candlestick Formations 13 Reversal Candlestick Formations 14 Chapter Three: Types of Orders Market Orders 18 Limit Orders 18 Stop Orders 19 One Cancels the Other 19 Cancel/ Replace Orders 19
4 Introduction A Trader's Mission and Goal It is the mission of the trader to become a long-term, financially successful trader. This can be achieved when the trader adopts and accepts The 10 Keys of Successful Trading. A trader must commit to live by three disciplines to become a successful trader. Three Disciplines of Successful Traders 1. A trader must believe in The 10 Keys to Successful Trading and merge them into their personality. Success depends on creating a trading plan, and maintaining the discipline to TRADE THAT PLAN! 2. A trader must be committed to Continuing Education. Study technical analyses and the psychology of successful trading. A trader must make logical decisions, void of emotions, while trading. Learn to trade in control! 3. A trader must map out a sensible equity management plan to ensure a Return On Investment. Trade no more than 20% of a Margin Account and expose no more than 5% of that account on any single trade. Levels of Traders Level One Beginner Trader - Studies and paper trades for a minimum of one month with pretend currency, gaining the experience required to establish a track record of profitable performance. Level Two Advanced Beginner - Trades one or two lots with real money, learning to overcome emotions and at the same time, establishes a track record of making money. Level Three Competent Trader - Trades with control over their emotional distractions. Utilizes proper equity management and achieves a positive financial return. Level Four Proficient Trader Trades with confidence, education and experience. Achieves positive financial returns. Level Five Expert Trader - Instinctively executes profitable trades without emotion.
5 Chapter 1 What is the Forex? Forex = Foreign Currency Exchange You can trade 24-hours a day The Forex is larger than all other financial markets COMBINED The Foreign Exchange (Forex) Market is a cash, or spot, interbank market established in 1971 when floating exchange rates began to materialize. This market is the arena in which the currency of one country is exchanged for those of another, and where international business is settled. The Forex is a group of approximately thousands of currency trading institutions that include international banks, government central banks, and commercial companies. Payments for exports and imports flow through the Foreign Exchange Market, as well as payments for purchases and sales of assets. This is called the Consumer Foreign Exchange Market. There is also a speculator segment in the Forex Market. Speculators have great financial exposure to overseas economies participating in the Forex to offset the risks of international investing. Historically, the Forex Interbank Market was not open to small speculators. With a previous, minimum transaction size, and often stringent financial requirements, the small trader was excluded from participation in this market. Today, Market Maker brokers are allowed to break down the larger interbank units and offer small traders the opportunity to buy or sell any number of these smaller units (lots). Commercial Banks play two roles in the Forex Market: (1) They facilitate transactions between two parties. For example, two companies wishing to exchange different currencies would seek the help of a commercial bank. (2) They speculate by buying and selling currencies. The banks take positions on certain currencies because they believe they will be worth more if, long, or less if, short, in the future. It has been estimated that international banks generate up to 70% of their revenues from currency speculation. Other speculators include many of the worlds most successful traders, like George Soros. The Forex also includes central banks from various countries, like the U.S. Federal Reserve. They participate in the Forex to serve the financial interests of their country. When a central bank buys and sells its own or a foreign currency, the purpose is to stabilize their own countrys currency value. The Forex is so large and is composed of so many participants, that no one player, not even the government central banks, can control the market. In comparison to the daily trading volume averages of the $300 billion U.S. Treasury Bond market and the approximately $100 billion exchanged in the U.S. stock markets, the Forex is huge, and has grown in excess of $4 trillion daily. The word market is a misnomer describing Forex trading. Unlike other markets, there is not a centralized location for trading activity. Currency trading takes place via the Internet or over the phone.
6 A large portion of Forex trading is done by large, international banks. These banks will process transactions for large companies, governments and their own accounts. These banks continually provide prices (bid to buy and ask to sell) for each other and the broader market. The markets current price of a particular currency is the most recent quotation from one of these banks. The live pri